For the past couple of months, I’ve been exploring some of the more confusing terminology of VC term sheets. In my last post, I discussed “drag-along” or “bring-along” provisions, which grant to the investors the right to compel the founders and other stockholders to vote in favor of (or otherwise agree to) the sale, merger or other “deemed liquidation” of the company. In today’s post I examine so-called “pay-to-play” provisions, which can be an important protection for the company.
What are Pay-to-play provisions? Pay-to-play provisions are designed to provide a strong incentive for investors to participate in future financings. In their simplest form, such provisions require existing investors to invest on a pro rata basis in subsequent financing rounds or they will lose some or all of their preferential rights (such as anti-dilution protection, liquidation preferences or certain voting rights).
To read the full, original article click on this link: Demystifying the VC term sheet: Pay-to-play provisions | VentureBeat
Author: Scott Edward Walker
